But funding agencies are refusing to finance the research and are instead favouring a new technique called cell reprogramming to make stem cells.

Two groups, at King's College London and Newcastle University, have had grant applications to create hybrid embryos turned down, forcing the scientists to consider putting the research on hold. Stephen Minger, who leads the team at King's, was seeking support for a project to create human stem cells that carry the genetic traits of neurodegenerative diseases.

Since the furore broke, however, scientists have developed a cheap and powerful new technique in which adult skin cells are reprogrammed to create cells that are almost identical to stem cells. Researchers have already used the technique to make so-called induced pluripotent stem (iPS) cells for patients with diabetes, muscular dystrophy and Down's syndrome. The work was named scientific breakthrough of the year by the prestigious US journal Science last year.

Media reports claiming that funders had refused to back hybrid embryo research for ethical reasons were rejected by stem cell scientists. "These kinds of embryos are accepted, ethical arguments wouldn't come into it at this stage," said Harry Moore, head of reproductive biology at Sheffield University. "What has happened is the field has moved on. You could argue that iPS cells are a more important area than hybrids now."

The latest figures from the Medical Research Council reflect a shift in favour of iPS cell research. The council's funding for adult stem cells, which includes iPS cells, rose sharply last year as a proportion of all stem cell research, from 46% to 61.3%. Overall, MRC funding for stem cell research rose from £23.6m in 2006/7 to £25.5m last year.

Sir Leszek Borysiewicz, chief executive of the Medical Research Council, said: "The MRC must make the best use of taxpayers' money and there is no better way to decide what should be funded than to use tried-and-tested peer review systems where scientists assess applications on their merits. This system, as operated, rules out the possibility of a personal moral view influencing the final outcome of a proposal.

"The MRC was instrumental in ensuring that the Human Fertilisation and Embryology Act allowed for the possibility of using admixed [hybrid] embryos in research. Clearly, we believe there may well be great potential for this avenue of research. Fighting for the right to carry out such research does not mean that it should get priority over other applications which score higher and hold more promise."